Overview
When choosing the right entity for your business, you must consider both non-tax and tax-oriented factors. Usually, one particular tax-oriented or non-tax factor will dictate the correct choice or will at least eliminate a particular approach. Non-tax factors influencing your choice of entity include formation and operation constraints, number of owners, type of management, desired period of existence, legal entity, allowable types of transfer of interests, the need for raising operating capital, and limited liability.

Tax-oriented factors influencing your choice of entity include whether it would be beneficial for the business to be taxed as a separate entity (C corporation) or have the income pass through and be taxed to the investors (partnership, S corporation, or limited liability company). There are also tax implications associated with the formation of the organization, the operation of the organization and the dissolution of the organization.
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What is a Corporation?
Deciding to incorporate your business simply means you have created a separate legal entity having its own identity. A new corporation will have its own tax identification number, bank account(s), separate tax returns, etc. It is also important to know that a corporation is a distinct and separate business apart from its owner(s). The most favorable reason for forming a corporation is that it creates limited liability to the persons who put capital into the business. That means that an individual's personal assets cannot be attacked by creditors of the corporation.
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What are the different types of Corporations?
There are public corporations, non-profit corporations and for profit corporations. Most for profit corporations fall into three categories:  publicly owned corporations, close corporations and professional corporations or associations The publicly-owned corporation sells its shares to members of the general public, either through major stock exchanges or "over the counter." The close, or closely-held corporation is generally one that has a small group of stockholders. The professional corporation, sometimes called the professional association, is one formed by doctors, lawyers or dentists, for example,  who practice their profession in corporate form as distinguished from individual or partnership form. 

Once formed, a corporation may choose to be treated as a "C" corporation or as a "Subchapter S" corporation for federal income tax purposes.  A corporation is automatically taxed as a "C" corporation unless its shareholders specifically elect to be treated as an "S" corporation. A "C" corporation is considered a separate entity from its shareholders for tax purposes, filing its own tax returns and paying tax on its own net income. An "S" corporation, however, is not taxed on its income but passes the income or loss through to its shareholders as if it were a partnership.
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What is a Partnership?
A partnership is when two or more people undertake an enterprise together, without the formalities of incorporation.  A partnership may exist without a written agreement; however, it is recommended that a formal association be established to address such common items as initial capital contributions, ownership interests, sharing of profits and losses and liquidation. Unless otherwise specified, partners are jointly and severally liable for all debts, obligations and activities of the partnership. 

At the time the partnership is established, a person may decide to be a "full" or "limited" partner. A full partner shares in the profits and is fully liable for the debts of the partnership, and both personal assets and partnership assets are vulnerable to attack by creditors. The limited partner simply invests in the business but takes no part in the activities of the partnership. A limited partner is only liable for the amount invested.
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What is a Limited Liability Company?
A limited liability company (LLC) is an entity that combines the limited liability features of a corporation and generally the pass-through tax treatment of a partnership. It may be formed by one or more owners called members. Management of the LLC is vested in the members, unless the Articles of Organization indicate otherwise and name a single or multiple manager(s). All LLCs are either taxed as corporations, partnerships or sole proprietorships (in case of single owner). An election made must be made for the LLC to be taxed as a partnership or a corporation. If corporation tax treatment is elected, then a second election could be made for it to be taxed as an S Corporation.
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What is a Limited Liability Partnership?
A limited liability partnership (LLP) is a general partnership that has elected to be treated as a "registered limited liability partnership." It is not to be confused with a limited partnership. For LLPs, a partner is not liable directly or indirectly for debts, obligations and liabilities of or chargeable to the partnership.
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If you would like to schedule a free consultation to obtain more detailed information regarding any of the above-listed entities and to receive our recommendation as to which entity would best serve you, simply call our office toll free at (866) 907-7600.